Workshop B FirstEnergy: Significant Developments Impacting Electric Rates - Tuesday, February 19, 2019 - Manufacturers' Education Council
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Workshop B
FirstEnergy: Significant
Developments Impacting
Electric Rates
Tuesday, February 19, 2019
10:45 a.m. to Noon
Biographical Information
Richard L. Jackson, Executive Vice President, Operations, ASHTA Chemicals Inc.,
3509 Middle Rd., PO Box 858 (44005), Ashtabula, OH 44004
(440) 997-668 Fax (440) 998-0286 rjackson@ashtachemicals.com
Mr. Jackson has been the EVP – Operations, since 1998 and responsible for all manufacturing,
maintenance, EHS, quality, and engineering. Since 2000, he has managed all aspects of power
for the facility, including contract negotiations – including a historic special arrangement, third-
party generation contracts, demand response contracts, and interconnect agreements for
distributed supply. ASHTA Chemical is a Chlor-Alkali manufacturer specializing in potassium
based chemicals. Chlor-alkali process uses an electrolytic chemical process which is very energy
intensive. The single facility in Ashtabula, OH has historically been one of CEI’s top customers.
Matthew R. Pritchard, Attorney, McNees Wallace & Nurick LLC
21 East State Street, 17th Floor, Columbus, OH 43215-4228
(614) 719-2842 (Direct Dial) / (614) 469-4653 (Fax) mpritchard@mwncmh.com
Matt is a graduate of The Ohio State University and Capital University Law School, where
he graduated magna cum laude in 2011. Upon graduation, Matt joined McNees Wallace
& Nurick LLC as an associate in its Energy and Environment practice group where he
focuses on representing large consumers of energy in regulatory litigation before the
Public Utilities Commission of Ohio (PUCO) and in appeals of the PUCO’s decisions at
the Ohio Supreme Court. Matt currently serves as chair of the Columbus Bar Association
Energy Law Committee.
Sonny Fanelli, Director, Rates & Regulatory Affairs
FirstEnergy Corp., 76 S. Main Street, Akron, OH 44308
sfanelli@firstenergycorp.com
Throughout his professional career at FirstEnergy, Sonny has worked in several areas
across the organization. Upon joining FirstEnergy Service Company he spent time early
in his career in Rates and Regulatory Affairs, the Controller’s Department, Internal
Auditing, Treasury, Investor Relations, and Customer Support. The majority of Sonny’s
career has been spent in Rates and Regulatory Affairs, working in both Akron and
Morristown, NJ, and he has taken on increased responsibilities over the years.
In Sonny’s current role, he is responsible for analyzing financial data of Ohio Edison
Company, The Cleveland Electric Illuminating Company, and The Toledo Edison
Company for various projects, preparing state regulatory filings and associated rate case
materials, and working with the Staff of the Public Utilities Commission of Ohio. Sonny
has experience in a number of matters that have come before the Commission, including
base rate cases, Electric Security Plans, Market Rate Offers, SEET filings, and numerous
rider cases and audits. He also provides support to the Companies’ customer service
representatives on issues related to the Companies’ rates and tariffs.
Santino Fanelli
Director, Rates and Regulatory Affairs
Ohio Energy Management Conference
February 19-20, 2019
Disclaimer
The information contained in this presentation material is
intended to provide generally descriptive and summary
information. Any conflict between the information contained
in this material, or conveyed orally during the presentation,
and the information provided in any of the Companies’ public
filings, as part of Public Utilities Commission of Ohio Entries
or Orders, or the Companies’ tariffs, or Ohio Statutes and
Rules, is unintentional and the docketed material controls.
The information contained herein is subject to change during
the regulatory process.
Ohio Energy Management Conference February 19-20, 2019 2
Agenda
■ Generation
■ Transmission
■ Distribution
■ Federal Income Tax Reform
■ Grid Modernization
■ Energy Efficiency
Ohio Energy Management Conference February 19-20, 2019 3
Generation
■ Generation Service Rider (Rider GEN)
– Power for SSO customers procured through a competitive bidding process
– Seasonally differentiated rider that recovers generation costs from non-
shopping customers
– Summer months: June-August
– Winter months: September-May
Ohio Energy Management Conference February 19-20, 2019 4
Generation Auction Schedule
Ohio Energy Management Conference February 19-20, 2019 5
Generation Auction Clearing Prices
■ Blended Competitive Bid Price is the result of the weighted average
of the Companies’ SSO auctions
■ Capacity pricing is established through an annual competitive
auction conducted by PJM
Ohio Energy Management Conference February 19-20, 2019 6
Generation – Shopping Update
■ Shopping has increased from 15% of kWh to 88% since 2008
■ FirstEnergy Ohio Operating Companies continue to have highest
shopping levels in the state
■ The savings Commercial and Industrial customers achieve through
shopping could be invested into the economy
Source: Public Utilities Commission of Ohio website.
Ohio Energy Management Conference February 19-20, 2019 7
Generation – Time-of-Use
■ Time-of-Use Pricing Options for Non-Shopping Customers
– Generation Service Rider (Rider GEN) Time-of-Day Option
– Experimental Critical-Peak Pricing Rider (Rider CPP)
– Experimental Real-Time Pricing Rider (Rider RTP)
– Opportunity to shift load from higher-price to lower-price periods or add
new load during lower-price periods
Ohio Energy Management Conference February 19-20, 2019 8Transmission
■ Non-Market Based Transmission Costs are recovered through
non-bypassable Rider NMB
■ Includes charges incurred from PJM such as NITS
■ Majority of charges are allocated by PJM using NSPL
■ Rider updated annually on March 1
Ohio Energy Management Conference February 19-20, 2019 9Transmission – Rider NMB Pilot
■ Introduced in June 2016 as a result of ESP IV Case
■ Allows eligible customers to shop for the services they would
have normally obtained through Rider NMB
■ Pilot participants must take both their NMB service and
generation service from a Retail Supplier participating in the Pilot
■ Participation in the Pilot does not guarantee that a
customer will save
Ohio Energy Management Conference February 19-20, 2019 10Distribution
■ Base distribution rate freeze through May 2024
■ Continuation of Delivery Capital Recovery Rider (Rider DCR)
■ Non-residential charges based on monthly peak demand
Electric Demand
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Hour
Ohio Energy Management Conference February 19-20, 2019 11Federal Income Tax Reform
■ Applicable riders updated in 2018 to incorporate lower tax rate
– Approximately $40 million in annual savings
■ Stipulation pending to address impacts of federal income tax reform and
grid modernization
– Original Stipulation Filed November 9, 2018
– Supplemental Stipulation filed January 25, 2019
■ Under the pending Stipulation, Companies would return to customers all
tax savings from January 1, 2018
– Total estimated savings of ~$900M
– Rate design: energy credit by rate schedule
Ohio Energy Management Conference February 19-20, 2019 12Grid Modernization
■ Under the same pending Stipulation, Companies would make
investments in phase one of grid modernization
– Projects: 700,000 Smart Meters, 200 Distribution Automation Circuits, 202
Integrated Volt Var Circuits, Advanced Distribution Management System (ADMS),
Additional Platform Work (circuit ties, reconductoring, reclosers)
– Customer benefits: fewer and shorter power outages, improved storm restoration;
customers participate in time-varying rates; EE and peak demand reductions;
carbon reduction, operational savings
– Robust review/audit of costs
– Collaborative process for stakeholders
– Rate design: customer charge
Ohio Energy Management Conference February 19-20, 2019 13PowerForward
■ “PowerForward is PUCO’s review of the latest in
technological and regulatory innovation that could serve to
enhance the consumer electricity experience. Through this
series, we intend to chart a clear path forward for future grid
modernization projects, innovative regulations and forward-
thinking policies.”
■ On Aug. 30, 2018, the PUCO issued its
PowerForward Roadmap:
– EDUs file grid architecture status reports
– EDUs file current state distribution system
planning assessment
– EDUs file cybersecurity plans
– PowerForward collaborative and workgroups
Ohio Energy Management Conference February 19-20, 2019 14Energy Efficiency Portfolio
■ Portfolio Plan for 2017-2019
■ Companies’ EE Portfolio offers incentives on a range of
Residential, Commercial & Industrial equipment and end
uses, such as:
Residential Commercial & Industrial
■ Appliance Turn-in ■ Agricultural
■ Audits ■ Audits
■ Commercial Electronics
■ Efficient Consumer Products
■ Custom Buildings
■ Efficient Lighting
■ Custom Equipment
■ Energy Conservation Kits ■ Data Centers
■ HVAC Equipment ■ Efficient Lighting
■ Low-Income Efficiency ■ HVAC Equipment
Assistance ■ Retro-Commissioning
■ Costs recovered through Rider DSE
■ Further information, including program incentives and eligibility, can be
found at www.energysaveohio.com
Ohio Energy Management Conference February 19-20, 2019 15Ohio Energy Management Conference February 19-20, 2019 16
FirstEnergy:
Significant Developments
Impacting Electric Rates
Workshop B
Manufacturers’ Education Council
23rd Annual Ohio Energy Management Conference
Columbus, Ohio
February 19, 2019
Matt Pritchard
Attorney, McNees Wallace & Nurick LLC
www.mcneeslaw.comPresentation Topics
• Electric Security Plan (“ESP”) IV Update
• Distribution Modernization Rider (“DMR”)
• Distribution Charges
• Rate GT Phase‐Out
• Settlement of Tax & Distribution Modernization Plan Issues
• Transmission Costs
• Capacity and Transmission Peaks
• FirstEnergy Solutions (“FES”) Bankruptcy
• Potential Legislation
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www.mcneeslaw.comESP IV Update
19
www.mcneeslaw.comESP IV Update
DMR Rider
Figures in millions
$900
$168
$800
$700
$168
$600
$500 $168 $876
$400
$300 $168 $540
$200
$204
$100
$-
2017 2018 2019 3-Year Potential Potential 5-Year
Total 2020 2021 Total
Cumulative Annual
• Authorized to collect $131M/year grossed up for taxes for 3 years with potential 2‐year extension (the level of revenue for years 4
and 5, if eventually authorized, has not been established)
• Tax savings on DMR ~ $36M/year as a result of the Tax Cuts and Jobs Act of 2017 (“TCJA”)
• DMR authorized because PUCO found that FirstEnergy faced a serious risk of credit downgrade that would result in adverse effects
on the companies and their customers
• PUCO determined that the rider would assist the companies in accessing capital markets to make investments in distribution
system, including grid modernization initiatives
• Current rates in Appendix
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www.mcneeslaw.comESP IV Update
Delivery Capital Recovery Rider (“Rider DCR”)
• Rider DCR recovers incremental capital distribution investment subject to
the following annual revenue caps:
o June 1, 2016 – May 31, 2017: $240M
o June 1, 2017 – May 31, 2018: $270M
o June 1, 2018 – May 31, 2019: $300M
o June 1, 2019 – May 31, 2020: $320M
o June 1, 2020 – May 31, 2021: $340M
o June 1, 2021 – May 31, 2022: $360M
o June 1, 2022 – May 31, 2023: $375M
o June 1, 2023 – May 31, 2024: $390M
• Current rates in Appendix
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www.mcneeslaw.comESP IV Update
Rate GT High Load Factor Credit
Charges
• June 1, 2016 – May 31, 2017: $8.00/kVa
• June 1, 2017 – May 31, 2018: $6.00/kVa
• June 1, 2018 – May 31, 2019: $4.00/kVa
Demand charges returned through energy credit
22
www.mcneeslaw.comSettlement of Tax &
Distribution
Modernization Plan
Issues
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www.mcneeslaw.comSettlement of Tax & Distribution
Modernization Plan Issues
Settlement
Tax Savings
• Approximately $900M in savings
• Customers have been saving ~$40M/year since 1/1/18 through rider adjustments
• Excess accumulated deferred income taxes (“EDIT”)
• Normalized EDIT: $483M credited to customers over ~25 years
• Non‐normalized Property EDIT: $194M credited to customers over 10 years
• Non‐normalized Non‐Property EDIT: $93.5M offset to above credits and amortized over 5 years
• Current federal income tax expense savings: $35M credited annually
• Projected TCJA credit mechanism rates for 2019 are below (2019 projected credit pick up 2018 portion of credit.
Credit for 2020 and will be less):
24
www.mcneeslaw.comSettlement of Tax & Distribution
Modernization Plan Issues
Settlement
Distribution Modernization Plan Investments
• Advanced metering infrastructure (“AMI”) (700,000 advanced meters)
• Meter data management system (“MDMS”), with associated systems and processes
to enable advanced data access
• Distribution automation (“DA”) (200 circuits)
• Integrated volt/var‐ampere reactive control (“IVVC”) (202 circuits)
• Advanced distribution management system
Plan Costs
• Can recover up to $516M in capital costs
• Incremental operations and maintenance (“O&M”) costs limited to $139M over
years 1‐3
• O&M costs must be incremental to O&M costs recovered in base distribution rates
• O&M capped at $15.2M in year 4, at $10.3M in year 5, and $10.5M in year 6
• Costs recovered through Rider AMI
• Rate GT customers do not pay Rider AMI
O&M Savings to be Credited
• $0.05M in year 1, $0.90M in year 2, $3.28M in year 3, $8.58M in year 4, $9.68M in
year 5, $9.82M in year 6
• Residential customers will receive an additional $1M in O&M savings for years 4‐6.
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www.mcneeslaw.comTransmission
Costs
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www.mcneeslaw.comTransmission Costs
Non‐Market Based Transmission Services
(“Rider NMB”)
Rider Revenue Requirement
$74M
$60M
$58.3M
$95.5M
$164.6M
7/1/14 $244M 7/1/15 $408M 3/1/16 $504M 3/1/17 $562M 3/1/18 $622M 3/1/2018 $696M
Annual Increase
27
www.mcneeslaw.comCapacity &
Transmission Peaks
28
www.mcneeslaw.comCapacity & Transmission Peaks
2018 Peak Days
PJM System Peaks Capacity ATSI Zone – Transmission
Obligation Obligation
8/28/18 HE 1700 150,454 9/5/18 HE 1600 12,824
9/4/18 HE 1700 148,285 Peaks that
8/28/18 HE 1700 12,717
establish
6/18/18 HE 1700 148,169 customer’s PLC 6/18/18 HE 1500 12,624
and NSPL
9/5/18 HE 1700 147,621 9/4/18 HE 1400 12,395
8/27/18 HE 1700 145,508 7/16/18 HE 1400 12,377
Projected 2018 Peak 152,108 8/27/18 HE 1900 12,376
8/29/18 HE 1500 12,374
Projected 2018 Peak 12,952
* HE: Hour Ending
** PLC: Peak load contribution, i.e. capacity billing tag
*** NSPL: Network service peak load, i.e. transmission billing tag
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www.mcneeslaw.comCapacity & Transmission Peaks
2017 Peak Days
PJM System Peaks Capacity ATSI Zone – Transmission
Obligation Obligation
7/19/2017 HE 1800 145,331 7/19/2017 HE 1700 12,052
7/20/2017 HE 1700 145,097 6/13/2017 HE 1400 12,037 Transmission
Capacity Obligation
Obligation 5 CPs 7/21/2017 HE 1700 142,003 7/21/2017 HE 1500 11,469 5 CPs
6/12/2017 HE 1800 140,660 8/21/2017 HE 1400 11,894
6/13/2017 HE 1700 138,365 7/20/2017 HE 1500 11,834
2016 Peak Days
PJM System Peaks ATSI Zone – Transmission
Capacity Obligation Obligation
8/11/2016 HE 1600 151,945 8/11/2016 HE 1500 12,752
Capacity 7/25/2016 HE 1600 150,931 8/25/2016 HE 1600 12,701 Transmission
Obligation 5 CPs 9/7/2016 HE 1700 12,627 Obligation 5 CPs
8/12/2016 HE 1600 146,889
7/27/2016 HE 1700 144,543 8/12/2016 HE 1500 12,578
8/10/2016 HE 1700 143,357 7/13/2016 HE 1800 12,539
30
www.mcneeslaw.comFES Bankruptcy
31
www.mcneeslaw.comFES Bankruptcy
Exelon had agreed to purchase retail contracts for $140M
Subsequently, FES terminated the agreement with Exelon
Increasingly likely that FES will emerge from bankruptcy and
continue to act as a competitive supplier
32
www.mcneeslaw.comFES Bankruptcy
Excerpt of press release
33
www.mcneeslaw.comFES Bankruptcy
Generation Deactivations (7,971 MW)
Davis Besse (896 MW): 5/31/2020
Perry (1,247 MW): 5/31/2021
Eastlake 6 (24 MW), June 1, 2021
Bruce Mansfield Units 1-3 (2,490 MW), June 1, 2021
Beaver Valley 1 (909 MW): 5/31/2021
FES also seeks to reject wind PPAs Beaver Valley 2 (902 MW): 10/31/2021
W.H. Sammis Diesel (13 MW), June 1, 2021
W.H. Sammis Units 5-7 (1,490 MW), June 1, 2022
Seeks to reject PPA with
Forked River (86MW)
Pleasants Power Station to be
transferred to creditors
34
www.mcneeslaw.comSignificant Court &
Legislative
Developments
www.mcneeslaw.comPotential Legislation
Energy Mandate Reform
kWh Tax Clarification
Zero‐Emissions Nuclear (“ZEN”) Credit
Submetering
Biennial State Budget
36
www.mcneeslaw.comQuestions?
37
www.mcneeslaw.comContact Information
Matt Pritchard
McNees Wallace & Nurick LLC
21 East State Street, 17th Floor
Columbus, OH 43215‐4228
Direct Telephone: 614.719.2842
Fax: 614.469.4653
mpritchard@McNeeslaw.com
*The information in this presentation represents the personal views of Mr. Pritchard and are not necessarily the
views of his firm, colleagues, or clients
38
www.mcneeslaw.comAppendix
39
www.mcneeslaw.com40
Rider DMR Rates
Rider DMR Rates
Ohio Edison Cleveland Electric Illuminating (“CEI”) Toledo Edison (“TE”)
(“OE”)
RS (all kWhs, per kWh) 0.3332¢ RS (all kWhs, per kWh) 0.3373¢
GS (per kW of Billing Demand) $0.5177 GS (per kW of Billing Demand) $0.5898
GS (all kWhs, per kWh) 0.1560¢ GS (all kWhs, per kWh) 0.1589¢
GP (per kW of Billing Demand) $0.6023 GP (per kW of Billing Demand) $0.8126
GP (all kWhs, per kWh) 0.1560¢ GP (all kWhs, per kWh) 0.1589¢
GSU (per kVA of Billing Demand) $0.4309 GSU (per kW of Billing Demand) $0.6235
GSU (all kWhs, per kWh) 0.1560¢ GSU (all kWhs, per kWh) 0.1589¢
GT (per kVA of Billing Demand) $0.3945 GT (per kVA of Billing Demand) $0.2713
GT (all kWhs, per kWh) 0.1560¢ GT (all kWhs, per kWh) 0.1589¢
• Rates effective 1/1/19
www.mcneeslaw.comRider NMB Rates
OE CEI TE
RS (all kWhs, per kWh) 1.3929¢ RS (all kWhs, per kWh) 1.3561¢ RS (all kWhs, per kWh) 1.3422¢
GS* (per kW of Billing Demand) $4.1745 GS* (per kW of Billing Demand) $4.4543 GS* (per kW of Billing Demand) $4.1665
GP* (per kW of Billing Demand) $5.0365 GP* (per kW of Billing Demand) $6.7035 GP* (per kW of Billing Demand) $5.1982
GSU (per kVa of Billing Demand) $4.1763 GSU (per kW of Billing Demand) $5.1925 GSU (per kVa of Billing Demand) $5.1917
GT (per kVa of Billing Demand) $4.1080 GT (per kVa of Billing Demand) $2.8860 GT (per kVa of Billing Demand) $4.9442
• Rates effective 4/1/18
41
www.mcneeslaw.comRider DCR Rates
OE TE CEI
RS (all kWhs, per kWh) 0.6071¢ RS (all kWhs, per kWh) 0.7038¢ RS (all kWhs, per kWh) 0.8056¢
GS (per kW of Billing Demand) $2.0597 GS (per kW of Billing Demand) $3.1902 GS (per kW of Billing Demand) $3.5856
GP (per kW of Billing Demand) $1.4766 GP (per kW of Billing Demand) $1.1035 GP (per kW of Billing Demand) $1.2624
GSU (per kVa of Billing Demand) $0.6150 GSU (per kVa of Billing Demand) $0.7856 GSU (per kW of Billing Demand) $0.8801
• Rates effective 12/1/18
42
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